China has imposed tariffs on imports of European brandy, a move France says is retaliation for recent high tariffs announced by the EU on Chinese electric vehicles.
The European Commission said it would challenge the Chinese tax at the World Trade Organization (WTO), calling it an “abuse” of trade defense measures.
But China said the move was an “anti-dumping measure” that would protect its domestic producers.
French brandy makers said the tariffs, which will hit major brands such as Hennessy and Remy Martin, would be “catastrophic” for the sector.
Shares in brandy companies fell after the announcement.
China announced new restrictions on European cognac just days after EU countries approved it High tariffs for Chinese-made electric vehicles.
China’s Commerce Ministry said cognac imports threaten “substantial harm” to its own producers. Importers will have to pay “deposits” on European brandy.
It also said it was considering an increase in tariffs on imports of vehicles with large engines, which would hit German producers the hardest, and on pork and dairy products.
French Trade Minister Sophie Primas said the cognac tax “appears to be a retaliatory measure” after the European Union’s decision to raise tariffs on Chinese electric cars.
She said this kind of retaliation would be “unacceptable” and a “complete contradiction” of international trade rules, adding that France would work with the European Union to take action at the WTO.
France accounts for 99% of brandy exported to China, and French cognac lobby group BNIC said the move would be “catastrophic” for the sector.
“The French authorities cannot abandon us and leave us alone to deal with Chinese retaliation that has nothing to do with us,” BNIC said, adding that taxes “must be suspended before it is too late.”
Shares of companies that sell liquor were hit hard after the Chinese announcement.
Luxury company LVMH, which produces Hennessy, fell more than 3%, while Remy Cointreau, which makes Remy Martin, fell more than 8%.
Analysts at Jefferies estimate that the tariffs could translate into a 20% price increase for consumers, which would likely result in supplier volumes and revenues falling by a fifth.
Shares of German automakers, which could also be hit by retaliation from China, also fell.
Volkswagen, Porsche, Mercedes-Benz and BMW were all down after the announcement.
